If you and your spouse split most of your expenses, it might be a good idea to consider a joint credit card. This will eliminate quite a bit of hassle because at the end of the month, you will have only one bill to take care of. However, there are some negative sides to joint credit cards as well, and if not used responsibly they can tank your credit score.
How Joint Credit Cards Work
There are two ways you can share your credit card with someone else. First, you can get your own credit card and request for the other person to be added as an ‘authorized user’. When you go this route, you will be the main owner of the card, but the other person will be able to freely use the card as well.
The other way you can share a credit card with someone is by getting a joint account. For a joint account to be created, the issuer is required to review both parties credit history before making the financial decision. Because of this, you should both check your credit score before even considering a joint account.
So what is the difference between these two methods?
The difference is the fact that with joint accounts, both parties are equally responsible for all the charges listed on the statements. This is not the case with authorized users. Authorized users are allowed to make purchases using the credit card but they do not have any financial liability for the purchases. The only person the bank will go after is the owner of the credit card.
The other difference is the fact that it is possible to improve both users credit scores with joint accounts by paying on time. With an authorized user, the only score that can be improved (or damaged) is the account holders score
Benefits of Joint Credit Cards
Joint credit cards can be very advantageous in some situations. For example, if you are married, it might be a great idea to get a joint credit card. Doing this makes it easy for you and your spouse to split the bill because it comes in one statement.
The other advantage you get from a joint credit card is the fact that you both enjoy all the features of the card such as disputing charges and transferring balances. With joint accounts, any of the users can make decisions concerning the credit card without any restrictions. This is not the case with authorized users. The only privilege they get is purchasing power.
Joint credit cards are also very advantageous for people with poor credit history. Since the issuer has to review both parties credit history, the user with a great score can help to balance off the other user. This enables them to enjoy better terms of credit than they would on their own.
Negatives of Joint Credit Cards
Joint accounts also have disadvantages you need to consider. The biggest one is the fact that since you both have equal rights to the account, you will be liable for the charges the other person makes. This can be a problem because you will have less control over how they use the credit card.
The other negative is the possibility of higher interest rates. Let’s say you have a great credit score, but your spouse has a poor credit score. If you opened the account by yourself you would be rewarded with a low interest rate because of your credit score. However, with a joint card, the interest rate would be higher because your spouses score will ‘drag you down’ so to speak. In cases like that, it might be wise to just add your spouse as an authorized user until their score improves.
Important Questions to Ask
There are a few important questions you need to ask yourself before you decide to get a joint credit card.
Would you achieve the same goal by adding the person as an authorized user?
This is a very important consideration. If it is possible to make the person an authorized user and still achieve the goals you have in mind, there is no need to get a joint credit card. Authorized users are very easy to drop if they are not using the card responsibly. It is more challenging to cancel a joint account and it takes a longer time to finalize.
Do you have any guidelines in place?
Before you get the joint credit card, it is very important for you and the other user to agree which expenses the credit card will be used for and how you are going to split the bill every month. With clear guidelines, you are less likely to have misunderstandings.
Are you ready for such a commitment?
If anything happens to your relationship, you will still be liable for the expenses of the other person. This could cause you a lot of financial stress in case they decide to go overboard on the credit card when the relationship ends. This might mean bad news for your credit score (not to mention your checking account). So it’s important to know if you are really ready to take on such a commitment. Take some time to think about it before making the final decision.
Joint credit cards are great because they make it much easier to manage your finances. However, they are also a great responsibility and can potentially have a negative impact on your credit history and your relationship if the other person is starting to spend more than the agreed amount. Therefore, it’s important to take the time to think about all the pros and cons and whether or not you would be able to handle such a commitment before you get into it. Doing this will enable you to make an informed and educated decision. If you decide to get one, make sure you and the other person create guidelines and rules for using the credit card in order to ensure you both benefit from the arrangement.